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CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Wednesday, 4 February 2015

RBA Chart Pack day

Chart Pack for January out

The Reserve Bank just released its Chart Pack for the month of January 2015 which always makes for an interesting read.

Below are a handful of the more interesting observations.

Inflation easing

Firstly, any real or imaginary inflationary pressures do appear to be easing, suggesting that very low interest rates are indeed likely to be the order of the day across the next two years.

Non-tradables and Tradables Inflation graph

Manic-depressive mining sector

The mining sector is a dichotomy indeed. 

As looked at often here previously, mining capital expenditure is set to take a nose-dive over the next two years. 

Non-mining capex has picked up a little in response to interest rate cuts, but it's a tall order to plug the gap that the collapse in resources construction will leave behind.

Capital Expenditure – Mining and Non-mining graph

On the production front, Australia is absolutely going bulk commodities bananas - talk about a leveraged economy!

Of course, Australia is exporting ever greater volumes of these resources into an ever more depressed commodities market at the present time.

A lower dollar would certainly be of assistance to this awkward dynamic!

Bulk Commodity Exports graph

Household debt levels have begun to creep up again in response to lower borrowing rates.

With the banks now passing on yesterday's interest rate cut - a generous 28bps in Westpac's case - the interest paid on household debt is probably set to remain at around 9 percent of household disposable income (on average).

Interest repayments are doubtless tough for some, but serviceability is close to a third better than it was previously, on average.

Household Finances graph

House prices are rising, largely driven by Sydney and that order.

Housing Prices graph

Share markets are salivating at the anticipating of lower rates too, and yield plays seem likely to thrive.

The RBA's latest Chart Pack only runs until January 29, but share markets have gone on a tear for the last nine trades, adding very substantial gains in many cases.

By way of an example, Commonwealth Bank hit a new record high of $91.94 earlier today.

This short blog post from a couple of years ago explains why I generally prefer industrials to resources stocks, despite the boom in the resources index from the turn of the century.

Industrials and financials are now at long last redressing the balance, particularly those with a dollar exposure.

Australian Share Price Indices graph

The wrap

Overall, it's a very interesting set of charts which paints a picture of a struggling economy lacking in business or consumer confidence and demand. 

And it's for that reason that futures markets are pricing in implied yields of below 2 percent for the next 18 months - we are set for a period of interest rates considered unthinkably low only a few years ago.

There are some shining lights, mainly residential construction and export volumes, but forecasts are likely to anticipate sub-trend economic growth for some time ahead yet.

You can view the rest of the RBA's Chart Pack here